Introduction
According to Cho (2003), different businesses utilize different internationalization strategies to transcend operations in various jurisdictions. An important difference distinguishing the approach towards internationalization of the platform firm against the traditional production-based firm is that platform companies, through their digital platforms with network effects and data-driven business models, epitomize the cornerstone leading to rapid entrepreneurial-driven global expansion. On the other hand, traditional production-based firms are those directly dealing with actual goods of production and distribution; they may, therefore, face problems for slow internationalization because of heavy logistics and investment (Brouthers, 2013; Luo and Tung, 2007). Knowledge of these differences becomes paramount for any corporation that wants to discern the complexities of the global market. This paper seeks to explain the host country location selection, mode of entry, AAA strategy, and the pace of internationalization disparities between a platform firm and a traditional production-based firm in the markets of international business, thus describing the factors driving the differences and what it means for an enterprise running in a global business environment.
Internationalisation Strategies
In this case, the platform firms fully depend on a digital platform that utilizes network effects, supported by a data-driven model to enhance the exchange of interaction between users of the platform. According to Stallkamp and Schotter (2021), these firms would have intermediation roles between buyers and sellers, service providers and service consumers, and content generators and content consumers. Their value proposition does not lie with the production of a physical product, as it would be in the case of traditional production-based firms; instead, it lies in the fact that it enables transactions, services, or content distribution (Luo and Tung, 2007). For example, Airbnb changed the scene of the hotel business operation because it allowed travelers to use the accommodation fittings and items in exchange for a fee. In addition, Uber completely revolutionized the transit business by developing a mobile application that links passengers to drivers, literally changing the taxi business (Beyer, 2016). What has always been a small online bookstore in the past, Amazon, is turning into a network where many of its competitors are also platforms for all kinds of goods and services. They all benefit from network effects to crank up the value to both customers and merchants. These instances evidence the way in which platform firms leverage digital platforms to build scalable business models that might overcome geographical borders or sector structures.
Whereas the type of production-based firms traditionally produce and distribute physically made products, they frequently buy, rent, or lease physical facilities for production. As Cusumano et al. (2015) demonstrated, they buy or employ labor, purchase raw materials, manufacture products, and distribute them through supply chains. The best example is the frontiers in the motor vehicle industry, which drop to companies such as Ford and Toyota. Björkdahl (2020) and Toyota in the world (n.d) note that these companies do produce vehicles in factories and distribute them through dealerships to all parts of the world. Equally, giant consumer goods companies, Procter & Gamble and Unilever, design large arrays of tangible products, including houseware, personal care, and foodstuff, that they dispatch through retail channels (Luo and Tung, 2018). A Macrotrends report highlights that world manufacturing is an important player in the economy, recording more than $16 trillion of manufacturing outputs as of 2022 (Macrotrends, n.d). Such firms often splurge on machinery, infrastructure, and logistics to optimize the production processes in response to consumer demands for physical products.
Strategy Comparison
Platform firms utilize digital platforms to quickly globalize due to scaling and increased outreach. For instance, as per Gawer (2021), Google’s search engine and advertisement platform grow and spread very fast to different nations worldwide, thereby taking advantage of the internet’s borderless nature. On the contrary, traditional firms enter markets gradually through exporting or foreign direct investment (FDI). Companies like Coca-Cola and McDonald’s first started expansion abroad with franchising or licensing agreements, but they did not have a physical existence in new markets for very long (Luo and Tung, 2018). Data from the United Nations Conference on Trade and Development (UNCTAD) showed that world FDI flows averaged $1.37 trillion in 2023 (UNCTAD, 2024). This could reveal this strategy’s absolute importance to the common or conventional companies. Platform firms benefit from instant global connection, while traditional firms are likely to be interested in what would appear to be developing local infrastructure and relationships as a way of securing lasting business within new markets.
Platform firms have to focus on those host countries where digital infrastructure should be strong and have market potential to carry out business online. For example, the strategic targeting of Tech Giant Facebook and Alibaba is based on countries that have high penetration of the internet, and e-commerce is growing at a fast pace, such as India and Brazil (Parker et al., 2017). A 2021 International Telecommunication Union (ITU) estimate put world internet penetration at about 53.6%, representing huge potential for the platform firms in connected markets (Reglitz, 2020). On the other side, the location decisions of host countries of conventional firms are based on three factors: labor costs, proximity to raw materials, and market demand (Watson IV et al., 2018). For instance, automobile manufacturers BMW and Mercedes-Benz established their production facilities in countries with skilled and qualified labor, such as Germany and China, with a conducive business environment.
In the mode of entry aspect, the platform companies use online platforms, partnerships, or acquisitions when entering new markets. For example, when Google acquired Fitbit, it integrated its technology with the system and ecosystem it already had in place (Brutti and Rojas, 2022). Besides, at the level of the grocery segment, Whole Foods Market has penetrated through acquisition by Amazon with the help of its current physical chain of stores to make the delivery. According to Gautier and Lamesch (2021), Mergers and Acquisitions (M&A) activity globally reached $3.6 trillion in 2021. According to Brutti and Rojas (2022), partnerships and online platforms help firms to enter new markets.
Meanwhile, conventional firms begin to set up subsidiaries, joint ventures, or franchising agreements with entities based in the target market in order to get into new markets (Stallkamp and Schotter, 2021). Fast food chains such as McDonald’s and KFC are an example of turning oneself global through franchising arrangements, where they offer to operate under their brand name to local entrepreneurs (Baena and Cerviño, 2015). Similarly, automobile manufacturers like Toyota get into joint ventures with local partners to tackle a host of regulatory complexities and cultural dynamics in foreign markets. With the entry mode, while leveraging digital platforms and acquiring other firms to set ground in the market, platform firms enter new markets (Slangen and Hennart, 2007). On the other hand, traditional firms tend to be more reliant on conventional methods like franchising and joint ventures.
With the AAA strategy, typical business models of the platform firms are those of aggregation and arbitrage through effective and efficient scalability (Brouthers, 2013). For example, firms that include Uber aggregate the demand for transport services onto their platform, connecting a rider and a driver very efficiently (Beyer, 2016). Take, for example, Airbnb, which connects hosts willing to give a traveller a place to stay by way of bartering unused space with strangers. Contrarily, conventional firms often resort to adaptation strategies in order to modify the product or service so that it is offered in local markets. For example, multinational beverage companies like Coca-Cola have localized tastes to meet the varying consumer tastes around the world. Similarly, fast-service restaurants like KFC and McDonald’s vary the items on their menu to suit local diets in different countries (Khan and Khan, 2013). According to McKinsey, companies that invest in local product or service adaptation enjoy faster growth and higher profitability or, at minimum, for some customer segments (Brouthers, 2013). Even when highlighting those differences between platform and traditional firms, while the former tends to stress aggregation and arbitrage, the latter focuses on adaptation strategies that matter the most for succeeding.
Pace of Internationalisation
The internationalization process is faster for platform companies due to digital platforms and network effects. Firms expand in the market at a very high speed, overtaking competitors very quickly by expanding over the top and utilizing scalable platforms (Cho, 2003). Digital firm Airbnb has redefined the rule of global hospitality with a staggering growth of more than 190 countries (Gawer, 2021; Stallkamp and Schotter, 2021). According to Jovanovic et al. (2022), the global size of the sharing economy, being largely driven by platform firms, may soar up to $335 billion by 2025. In addition, platform firms demonstrate agility in their responses to market opportunities and competitive pressures. For example, tech giants like Google and Amazon constantly change and innovatively adjust their platforms according to new consumers and evolving needs while still keeping an eye on their competitors (Jovanovic et al., 2022). The rapid speed of such internationalization will allow the platform firm to take the first-mover advantage and occupy dominating positions in the global market.
In stark contrast, traditional production-based firms tend to internationalize much more slowly due to the burdensome logistics and investment requirements of creating a physical presence in new markets (Cusumano et al., 2015). Traditional firms do not enjoy the luxury of automatically entering across borders; rather, they have to be part of complex supply chains, transport networks, and regulatory barriers. For example, car makers like Ford and Toyota always have one sort of logistic challenge or another in their shipments of cars outside the continent or in the establishment of dealership networks in new countries (Mosley, 2017). According to Baena and Cerviño, (2015), the World Trade Organization (WTO) provides that manufactured goods contributed to almost 70% of world merchandise on average, an indicator that traditional production-based firms are a core component in international trade.
Further, traditional firms gently penetrate the markets to reduce risks and ensure sustainability in foreign lands. The firm might start from the basis of exporting or licensing arrangements and then move on further to set up local manufacturing facilities or distribution networks in a gradual manner (Conconi et al., 2016). For instance, companies from the consumer goods sector, like Procter & Gamble or Unilever, often come to a new market by establishing joint ventures with local distributors or retailers long before they invest to build their production facilities there. According to Mosley (2017), this careful approach could enable traditional firms to adapt to the conditions and regulations of local markets and store-based relationships with consumers and stakeholders. Slow or not, such a systematic approach would strengthen the long-term viability and success of traditional, product-based firms in the international markets.
Conclusion
Stated differently, the comparison between traditional production-based and platform firms and their internationalization in a global economy must be pretty obvious. Platform firms can tap into the digital platform and network effects to grow explosively and even become international, something that a traditional firm takes a long while to wind down simply because of the logistical intricacies and investment that will have gone into them. These range from digital infrastructure, market potential, regulatory environment, competitive landscape, access to talent, etc., all of which determine the preferences of platform firms for host country location, mode of entry, and AAA strategy. These refer to the differences in business models and market dynamics, accounting for the different paces of internationalization. Understanding these distinctions is essential for businesses navigating the complexities of international markets. They can identify the challenges and opportunities that are platform business model-specific, as opposed to traditional business models, to be able to develop viable strategies for them to be able to fully benefit from those international opportunities and hence be able to adapt to market changes and not lose competitiveness in such a highly globalized world.
References
Baena, V. and Cerviño, J. (2015). New criteria to select foreign entry mode choice of global franchise chains into emerging markets. Procedia-Social and Behavioural Sciences, 175, pp.260-267. https://www.sciencedirect.com/science/article/pii/S1877042815012598/pdf?md5=7e76273d436ee8f2e6ee30ea01c66812&pid=1-s2.0-S1877042815012598-main.pdf
Beyer, S. (2016). Uber Has Revolutionized Transit More In 7 Years Than The Government Has In 7 Decades. Forbes. https://www.forbes.com/sites/scottbeyer/2016/10/28/uber-has-revolutionized-transit-more-in-7-years-than-the-government-has-in-7-decades/?sh=4f6578b13472
Björkdahl, J. (2020). Strategies for digitalization in manufacturing firms. California management review, 62(4), pp.17-36. https://doi.org/10.1177/0008125620920349
Brouthers, K.D. (2013). A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 44, pp.14-22.
Brutti, Z. and Rojas, L.E. (2022). M&A and early investment decisions by digital platforms. Journal of Industrial and Business Economics, 49(3), pp.509-543. https://link.springer.com/content/pdf/10.1007/s40812-022-00223-3.pdf
Cho, F., (2003). Aggregation: Overcoming Differences. Strategies for Global Value Creation. Toyota
Conconi, P., Sapir, A. and Zanardi, M. (2016). The internationalization process of firms: From exports to FDI. Journal of International Economics, 99, pp.16-30. https://www.econstor.eu/bitstream/10419/144410/1/wp198en.pdf
Cusumano, M.A., Kahl, S.J. and Suarez, F.F. (2015). Services, industry evolution, and the competitive strategies of product firms. Strategic management journal, 36(4), pp.559-575. https://doi.org/10.1002/smj.2235
Gautier, A. and Lamesch, J. (2021). Mergers in the digital economy. Information Economics and Policy, 54, p.100890. https://www.econstor.eu/bitstream/10419/215058/1/cesifo1_wp8056.pdf
Gawer, A. (2021). Digital platforms’ boundaries: The interplay of firm scope, platform sides, and digital interfaces. Long Range Planning, 54(5), p.102045. https://www.sciencedirect.com/science/article/pii/S0024630120302442
Grabher, G. and van Tuijl, E. (2020). Uber-production: From global networks to digital platforms. Environment and Planning A: Economy and Space, 52(5), pp.1005-1016. https://www.hcu-hamburg.de/fileadmin/documents/Professoren_und_Mitarbeiter/Gernot_Grabher/Uber_Production_Grabher_Tuijl_2020.pdf
Jovanovic, M., Sjödin, D. and Parida, V. (2022). Co-evolution of platform architecture, platform services, and platform governance: Expanding the platform value of industrial digital platforms. Technovation, 118, p.102218. https://www.sciencedirect.com/science/article/pii/S0166497220300900
Khan, M. and Khan, M. (2013). I’M Lovin’It”—Around the World: A Case Study of Mcdonald’s “Glocalization. Journal of Hospitality & Tourism Cases, 2(2), pp.64-73
Luo, Y. and Tung, R.L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of international business studies, 38, pp.481-498.
Luo, Y. and Tung, R.L. (2018). A general theory of springboard MNEs. Journal of International Business Studies, 49, pp.129-152. doi:10.1057/palgrave.jibs.8400275
Macrotrends. (n.d.). World manufacturing output 1997-2024. Macrotrends | The Long Term Perspective on Markets. https://www.macrotrends.net/global-metrics/countries/WLD/world/manufacturing-output
Mathews, J.A. (2006). Dragon multinationals: New players in 21 st century globalization. Asia Pacific journal of management, 23, pp.5-27. https://www.researchgate.net/profile/John-Mathews-8/publication/5143638_Comment_on_Dragon_multinationals_New_players_in_21st_century_globalization/links/09e415136c9a48b468000000/Comment-on-Dragon-multinationals-New-players-in-21st-century-globalization.pdf
Mosley, L. (2017). Workers’ rights in global value chains: possibilities for protection and for peril. New Political Economy, 22(2), pp.153-168. https://doi.org/10.1080/13563467.2016.1273339
Parker, G., Van Alstyne, M. and Jiang, X. (2017). Platform ecosystems. Mis Quarterly, 41(1), pp.255-266. https://www.researchgate.net/profile/Marshall-Van-Alstyne/publication/314439560_Platform_Ecosystems_How_Developers_Invert_the_Firm/links/5ddb5a12a6fdccdb4462c33a/Platform-Ecosystems-How-Developers-Invert-the-Firm.pdf
Reglitz, M. (2020). The human right to free internet access. Journal of Applied Philosophy, 37(2), pp.314-331. http://pure-oai.bham.ac.uk/ws/files/75399968/The_Human_Right_to_Free_Internet_Access_final_.pdf
Slangen, A. and Hennart, J.F. (2007). Greenfield or acquisition entry: A review of the empirical foreign establishment mode literature. Journal of international management, 13(4), pp.403-429. https://repub.eur.nl/pub/10539/ERS-2007-059-ORG.pdf
Stallkamp, M. and Schotter, A.P. (2021). Platforms without borders? The international strategies of digital platform firms. Global Strategy Journal, 11(1), pp.58-80. https://doi.org/10.1002/gsj.1336
Toyota in the world (n.d.). Toyota EU. https://www.toyota-europe.com/about-us/toyota-in-the-world
UNCTAD. (2024). Global foreign direct investment grew 3% in 2023 as recession fears eased. https://unctad.org/news/global-foreign-direct-investment-grew-3-2023-recession-fears-eased
Watson IV, G.F., Weaven, S., Perkins, H., Sardana, D. and Palmatier, R.W. (2018). International market entry strategies: Relational, digital, and hybrid approaches. Journal of International Marketing, 26(1), pp.30-60. https://core.ac.uk/download/pdf/161812881.pdf
write